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This led to the introduction of the Capital Markets Deregulation and Liberalization Act of 1995, (36) which with significant changes was enacted into law in 1996 as NSMIA. (37) In NSMIA, Congress, for the first time since the passage of the 1933 Act, preempted some state registration authority.
Don't get me wrong: NSMIA did clear up and parse out what was previously a complicated web of conflicting mandates.
Section 209 of NSMIA, largely unnoticed at the time, expanded the number of clients hedge funds could handle while escaping the 1940 Acts' rules, from 99 to an unlimited number of "qualified purchasers." This included individuals with $5 million in investments, and more important, institutional investors with assets of $25 million or more.
For example, cost-benefit analysis was included in the Senate's version of the legislation; the Senate's version, however, was not carried forward into NSMIA. (30) Moreover, in 1999, when Congress ultimately extended the "promote efficiency, competition, and capital formation" language to the Investment Advisers Act, in the same legislation it amended the Commodity Futures Trading Act with very different language that unquestionably called for cost- benefit analysis to support regulatory actions by the Commodity Futures Trading Commission (CFTC).
However, in practice, neither the SEC's voluntary cost-benefit analysis nor its considerations under the NSMIA have proven to be particularly rigorous.
Section 102(a) of the Capital Markets Efficiency Act of 1996, a part of the NSMIA, amended the 1933 Act by eliminating the necessity of registering most securities with both state and federal governments.
The NSMIA may be seen to have effected null preemption in two ways.
NSMIA, however, the ability of state regulators has diminished in the
Thus, the multiplicity of liability rationale, which argues persuasively in support of the NSMIA and SLUSA (insofar as it pre-empts fraud suits brought by transacting plaintiffs), carries little weight here.
Before NSMIA, a section 3(c)(1) fund had to look through any investor who (1) owned 10% or more of the section 3(c)(1) fund's voting securities (a 10% + investor) and (2) had more than 10% of its assets invested in section 3(c)(1) funds generally.
She continued: "And when the Congress enacted the NSMIA [National Securities Markets Improvement Act] and the JOBS Act, it not only gave the Commission authority to determine which purchasers are qualified but it also permitted the Commission to define the term differently for different types of securities offerings."
(6) The National Securities Markets Improvement Act of 1996 (NSMIA) had previously helped to define the boundaries of this rulemaking power by requiring the SEC to consider the "promotion of efficiency, competition, and capital formation" when formulating regulations.
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